Retail inflation hits three-year low of 3.41% in December-Industrial growth, IIP at 13-month high

Retail inflation hits three-year low of 3.41% in December

http://www.business-standard.com/article/economy-policy/retail-inflation-hits-three-year-low-of-3-41-in-december-117011201239_1.html  Dilasha Seth | New Delhi January 13, 2017 Last Updated at 00:44 IST

Retail inflation decelerated slightly to a series low last month, led by a decline in food prices. 

The likely cause is the cash crunch due to demonetisation of high-denomination currency that suppressed demand. This lower rate of consumer inflation enhances the possibility of an interest rate reduction by the monetary policy committee (MPC) in its next meeting. 

Consumer Price Index-based inflation, primary gauge of the central bank, fell to 3.4 per cent in December versus 3.6 per cent in the previous month, data released by the Central Statistics Office showed on Thursday. This was a fifth month in a row of decline in the rate of rise. The consumer food price index fell to a 15-month low of 1.34 per cent, from 2.03 per cent the previous month.

“This is due to both higher production entering the markets and possible distress sale at mandis due to the cash position,” said Madan Sabnavis, chief economist, CARE Ratings. Farmers reported a drop in sales after Rs 500 and Rs 1,000 currency notes ceased to be legal tender from midnight of November 8. 

The non-food price indices for clothing, housing and others saw inflation of four to five per cent. “These segments of core inflation have to be monitored closely,” said Sabnavis. 

The MPC, led by Reserve Bank of India (RBI) chief Urjit Patel, aims to contain inflation at four per cent, with a band of two per cent above and below. Its latest cut in the repo rate, at which RBI lends to banks, was in October by 25 basis points, to 6.25 per cent. 

“The fall in prices of vegetables and fruits is likely to have come on the back of insufficient cash to transact, while the decline in pulses is possibly on account of supply augmentation,” said Richa Gupta, senior economist at consultancy Deloitte.

Inflation in pulses eased to a negative 1.57 per cent versus 0.23 per cent inflation the previous month. Fuel inflation moved up to 3.77 per cent, from 2.8 per cent in November.

Gupta said global commodity prices, the pace of domestic recovery and implementation of the goods and services tax will introduce some uncertainty in the outlook. “However, given the price impulse in the system, the probability of another rate cut has possibly gone up,” she added.

The already muted demand in the economy was dented further on account of demonetisation. Public sector banks have responded by cutting lending rates for housing loans.

Clothing and footwear inflation inched downwards to 4.88 per cent, from 4.98 per cent in November. The index underwent a base year revision from 2010 to 2012 in February last year.

 

 

 

 

 

 

 

Demonetisation fails to pull down industrial growth, IIP at 13-month high

The sharp rise was due to low industrial numbers in November 2015
Subhayan Chakraborty & Indivjal Dhasmana | New Delhi January 12, 2017 Last Updated at 19:12 ISThttp://www.business-standard.com/article/economy-policy/demonetisation-fails-to-pull-down-industrial-growth-iip-at-13-month-high-117011201116_1.html

Industrial production belied all expectations of huge adverse impact of demonetisation as the index rose 13-month high of 5.7% in November against a contraction of 1.8% in the previous month. However, the sharp rise was also due to statistical illusion — low industrial numbers in November 2015, which is called base effect in a technical jargon — and a sharp reversal of a 12-month declining trend in capital goods.

If this trend prevails in the coming months on wards, the advance estimates of 7.1% growth in the gross domestic production for 2016-17 need not be revised drastically in contrast to the popular perception. Industry was projected to grow 5.2% in the GDP data for 2016-17 against 7.4% in the previous financial year. It should be noted that GDP data is value in terms of rupees and IIP is only a production number in terms of index.

The sharp rise in the index of industrial production (IIP) in the month of November could also be gauged from the fact that the index rose just 0.4% in the first eight months of the current financial year against 3.8% in the corresponding period of the previous financial year.

That the index in November of 2016-17 had a low base effect was evident as IIP was at the bottom in 2016-17 so far at 166.3 points in November 2015-16. In terms of growth, IIP fell 3.4% in November of the previous financial year.

Sunil Kumar Sinha, Principal Economist, India Ratings & Research, said, "IIP grew mainly due to the base effect...On the whole there is nothing to cheer about the November IIP growth as cumulative growth for April-Nov this fiscal is even lower than that recorded for the same period last fiscal."

Manufacturing, constituting three-fourth of the index, rose 5.5% in November, aided by capital goods and passenger cars, against a de-growth of 2.4% in October.
 

Manufacturing in GDP data was projected to grow 7.4% in 2016-17 against 9.3% a year ago.

Electricity generation was up almost 9% against 1% and mining 4% against decrease of 0.7%.

After declining by huge percentage each of the previous 12 months, capital goods saw a spurt of 15%. It had declined almost 27% in October. Capital goods sector is highly volatile in IIP.

Passenger cars production grew 29.5% in November, contributing 0.8% to rise in IIP.

Among automobile segment, motor vehicles, trailers & semi-trailers rose 23.2% in November and among capital goods radio, tv and communication equipment grew over 30%, electrical machinery and apparatus was up 23% and machinery and equipment by 13%.

Bolstered by auto, consumer durables surged almost 10% in November against a miniscule 0.6% in November.